[2014-12-08] Sidechains Could Turn Bitcoin into Reserve Currency

Sidechains Could Turn Bitcoin into the Reserve Currency of the Internet

http://insidebitcoins.com/news/sidechains-could-turn-bitcoin-into-the-reserve-currency-of-the-internet/27132

Sidechains is a method of creating new tokens of value without going outside of the bitcoin currency network. Many altcoins are currently traded on exchanges, and some of these coins have interesting features that could be valuable to certain sections of the bitcoin community. The main issues with these altcoins are that they have their own exchange rate and the bitcoin network effect is holding back their usefulness as money.

In a sidechains ecosystem, new tokens can only be created when bitcoins are frozen. In other words, you have to deactivate bitcoins if you want to issue a new currency on a sidechain. This means that the new cryptocurrency is effectively backed by bitcoin. For example, you could freeze ten bitcoins and create 40 litecoins on a sidechain. Those litecoins then trade at 0.25 BTC rather than having their own exchange rate. This is similar to the fixed exchange rates that were traditionally used between gold and fiat currencies.